Winnebago Industries Inc (WGO) 2004 Q4 法說會逐字稿

Good day, everyone, and welcome to the Winnebago Industries fourth quarter 2004 earnings results conference call. This call is being recorded. And at this time, for opening remarks and introductions, I would like to turn the conference over to Ms. Sheila Davis. Please go ahead, ma'am.

Thank you, David. Good morning and welcome to the Winnebago Industries conference call to review the company's record results for the fourth quarter and fiscal 2004, ended August 28th, 2004. Conducting the call today are Bruce Hertzke, Winnebago Industries' Chairman of the Board, CEO and President, and Ed Barker, SVP, CFO.

I trust each of you have received a copy of the news announcement on our earnings this morning, either via the Internet or fax. Additionally, this call is being broadcast live over the Internet at shareholder.com and vcall.com and is accessible from your own-- our own website at www.winnebagoind.com.

A replay of the call will be available at each site at approximately 1 p.m. Eastern time today. If you have any questions about accessing any of this information, please call our investor relations department at 641-585-6803 following the conference call today.

Before we start, let me offer the following cautionary note. This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are inherently uncertain. A number of factors could cause actual results to differ materially from these statements. These factors are contained in the company's filings with the Securities and Exchange Commission over the last 12 months, copies of which are available from the SEC or from the company upon request.

I'll now turn the call over to Bruce Hertzke. Bruce?

Thank you, Sheila. Good morning. I'd like to welcome everyone to our conference call this morning. I will briefly review a few of the highlights for the fourth quarter and fiscal 2004 for Winnebago Industries and then Ed Barker, our SVP and CFO, will review our financials with you.

We are extremely pleased with the continued growth in our revenue and earnings during the fourth quarter and our fiscal year 2004. Once again, we set new records for revenue and earnings for the fourth quarter and the fiscal year. It was a milestone event for us to pass the $1b mark in revenue.

The quarter benefited particularly from a strong Class A diesel motor home sale, while fiscal 2004 was positively increased by increased motor home sales volume overall, as well as a strong mix of Class A diesel products. Our diesel models, the Winnebago Journey and Vectra, and the Itasca Meridian and Horizon motor homes, continue to out-- to perform well in the market place, accounting for an 82% increase in our Class A diesel sales this year. This has resulted in Winnebago Industries' Class A diesel retail market share to grow to 14.3% calendar year to date through August 2004, compared to 8.9% for the same period last year.

Winnebago Industries remains the top-selling motor home manufacturer in the industry with 19.2% of the combined Class A and Class C markets for the first eight months of calendar 2004. Winnebago Industries continues to outperform the industry as a whole, with retail sales of our Class A and C motor homes combined up 10.7% for the first eight months of calendar 2004 compared to the same period last year, while the industry was up only 9.6%.

We were pleased to be-- we were also pleased to be recognized by the RV industry as a most admired company in a survey connected-- conducted by the "RV Business" magazine. We believe in being a high-quality company and feel very honored to be recognized in such a positive manner by our peers in the industry.

At this time I will turn it over to Ed Barker for the financial review. Ed?

Good morning. I'm pleased to review with you the excellent revenue and earnings performance for the fourth quarter and fiscal 2004. Revenues from continuing operations for the fourth quarter ended August 28, 2004, were a record $283m, a 25% increase when compared to revenues of $225.7m for the fourth quarter of fiscal 2003.

Net income for the fourth quarter was a record $19m, a 58% increase compared to $12m for the same period last year. On a diluted per share basis, the company earned a record 55 cents from continuing operations for the fourth quarter of fiscal 2004, a 72% increase compared to 32 cents a share for the fourth quarter last year.

For fiscal 2004, the company reported record revenues of $1.1b, a 32% increase compared to $845.2m for fiscal 2003. Net income for fiscal 2004 was a record $70.6m, a 41% increase when compared to $49.9m in fiscal 2003. On a per share basis, the company earned a record $2.03 per diluted share for fiscal 2004, a 53% increase compared to $1.33 per diluted share for the same period last year.

The company finished the year with $75m in cash. Cash generated by the operating activities of the company were $67m. The uses of cash were $10.6m in capital expenditures, $78m for the purchase of the company's common stock and $7m for dividends.

The-- Winnebago Industries has increased its dividend by 40% for our new fiscal 2005. The company now pays 7 cents a share on a quarterly basis, which annualized would amount to a total of 28 cents a share during fiscal 2005, compared to 5 cents a share quarterly for a total of 20 cents per share during fiscal 2004.

Winnebago Industries also continues to repurchase the company's stock. During fiscal 2004 Winnebago Industries repurchased 3.4 million shares of common stock, adjusted for the two-for-one split on March 5th of 2004, for an aggregate price of approximately $77.7m. The company has an open authorization for the repurchase of $30m of Winnebago Industries stock, of which approximately $27m is left available on that authorization.

I'll now call-- turn the call over to Bruce for closing remarks.

Thank you, Ed. We continue to believe that the long-term prospects remain very positive for the RV industry. Economic factors have improved since last year at this time.

Interest rates have remained at a relatively low historic level and the Feds have indicated that they do not intend to raise interest rates dramatically over the coming year. Consumer confidence levels are considerably higher at 96.8% in September of 2004 compared to 76.8% at the same period one year ago. These positive economic trends traditionally bode well for the RV industry.

Consequently, we remain optimistic about the future. Our 2005 products are being well accepted in the market place. The demographic trends continue to be very positive for the industry for continued long-term growth. We continue to lead the RV industry in profitability and Winnebago Industries has a strong balance sheet with no debt and approximately $76m in cash for future growth. Winnebago Industries is well positioned for a strong future.

Before we close, I'd like to thank the entire Winnebago Industries team for making fiscal 2004 a record-breaking year. We have a tremendous team of hard-working individuals who have helped Winnebago Industries achieve these record results.

Now I'll turn the call over the operator for the question-and-answer portion of this call.

If you'd like to ask a question today please do so by pressing the star key followed by the digit one on your Touch-Tone telephone. For those of you on a speaker phone today, please turn the mute function off first to allow the signal to reach our equipment. Again, that'll be star one if you'd like to ask a question.

We'll go first to Craig Kennison, Robert W. Baird.

Good morning, everyone.

Good morning.

Congratulations on your excellent year.

Thank you.

I wanted to talk first about the hurricane activity. Can you quantify the impact that the hurricane has had on your August and September retail environment?

Craig, what I can tell you is that Florida represents about 8% of the motorized RV market and naturally that's a big key state and they went through a period of time where, naturally, they were unable to accept some products because they didn't want it down there for the hurricanes and also they did not, even in-- some of the dealers-- even if-- they could not sell the product because they could not get it insured during a certain period of time. We are starting to see that go back to normal activities, but it would be hard to say that there was not some type of interruption caused by that.

So was your backlog higher because you couldn't ship units to Florida?

Well, yeah, that definitely could have amounted to a few units. Again, that's not going to be a major part of it. Again, there were just a few units that were affected by that.

And do you have a comment as to where your backlog is today?

No, we do not give any-- we only announce our backlog at the end of our quarter.

But is it fair to think because of the hurricane activity it could be down sequentially?

I don't think-- again, we just only announce at the end of the quarter.

That's fair. Sorry to try to box you into a corner there.

No, that's fine.

Could you address any sort of promotional activity that's ongoing, given that we've seen August retail sales having slowed? Has the promotional environment changed?

We have seen some competitors with different promotional programs. I think Winnebago-- over the last several years, we've kind of established we have different show promotions or promotional activities that happen throughout the year. We're pretty much staying right to our normal activities and promotional program. We're not going to chase the discount areas.

And then, relative to our model, your average selling prices were much stronger than we anticipated. Can you comment on what drove your average selling price higher?

Steve-- or Craig, this is Ed. It's obviously diesel products. They continue to be a significant part of the business climate that the company is selling into right now. That's primarily what the driver is.

Do you have a breakdown, Ed, at all, of the average selling price on gas, diesel and Cs?

I can give you that, if you'd like. During the fourth quarter our average Class C sales price was $53,566. Our average Class A gas was $84,929 and our average diesel price was $148,869.

And how do you expect those numbers to trend in the subsequent quarters?

I think you're going to continue to see somewhat of an upward trend. Some of the new features, particularly full-body paint on our Class A gas, will most likely continue to see increases in terms of ASP, certainly on the Class A gas. I think on the diesel we'll see probably our ASPs stay about where they were in the first-- in the fourth quarter.

OK. That's helpful. And then relative to gross margin, was that purely a function of the stronger average selling price? You had a surprisingly strong gross margin the quarter.

Yes.

OK. And then finally -- I can get back in the queue following this -- but, you know, there are-- there's a lot of controversy, it seems to me, regarding growth in 2005. RVIA, I think, at one point had an estimate of a 9% decline in volume. I've heard some manufacturers talk about something in the neighborhood of double-digit volume growth. Where do you guys shake out when it comes to volume growth in 2005?

Again, naturally the economy is the key factor of this. We definitely believe that there will be some up and down periods of time, but as we said in our opening statements we're still very optimistic that there'll be continued growth opportunities in the RV industry.

Winnebago Industries, between feature benefits, our average selling prices, new floor plans and new features that are offered on them, so you're going to have some-- and inflationary factors, all those things are going to contribute towards Winnebago to continue to grow. And I think that, you know, we continue to expect that 2005-- it may start out a little slower, but we continue to think that the economy and the consumer confidence that's going up will eventually take us back to a strong market.

Thanks, again.

Thank you.

And we'll go next to Scott Stember from Sidoti & Company.

Good morning.

Good morning, Scott.

Ed, could you give the ASPs for the gas, diesel and C for last year's fourth quarter, if it's possible?

Yes. Fiscal-- fourth quarter fiscal 2003, Class C was $51,011. Class A gas was $73,940 and Class A diesel was $136,743.

OK. And, Ed, also while I have you, on the topic of SG&A, while on a percentage term it was pretty much in line with last year, that was-- on absolute dollars a little bit of a high number. Was there anything in there-- any promotional stuff at retail or is that just--

You're speaking for the quarter?

Yeah, for the quarter.

Actually, the increases over last year for the quarter were because we had a record year we paid our employees a pretty significant bonus. That was the bulk of the increase. We also had higher legal expenses during the fourth quarter of this year compared to last year.

Any particular reason for the legal expenses?

They're just mostly general in nature.

OK. And with regards to dealer inventory, just, you know, general comments. I mean, it was a bit above last year. It looks like about 20%. Is this an indication of at least what Ed just alluded to, I mean-- I mean, what Bruce just alluded to that the first part of the year could be a little bit slower that maybe some of the dealers are just taking a little bit less or is it-- is there something else in those numbers?

No, I think what we're seeing Scott is that our inventories, because of all the new diesel product lines and then at our dealer days this year we had a news release of our new products for 2005. We came out with the new Aspect and Cambria, which is what we call a 700-series motor home which is a new market segment that we got into, we actually were expecting our dealer inventory to go a little higher so that they can just stock our new product lines.

So I guess we're very comfortable with where the dealer inventory is currently today and we feel that we need to at least maintain where we're at today for dealer inventory.

OK. That's all I have for now. Thanks.

Thank you.

Our next question comes from John Diffendal, BB&T Capital Markets.

Good morning. Congratulations. Just to follow up on that, so of the dealer inventory you're showing at the end of the quarter, 4978, how much of that actually comes from the Cambria and Aspect?

Probably just a few units that-- of that 4978 because at that time, if you remember, we just introduced that product in our dealer days in July. And so there was very little inventory in the field at that point in time.

And can you give us some comment on what your--

In actual number, it was actually like under 70 units.

Under 70 units?

Yeah.

OK. But-- so it's still sort of rolling out into that number? We might see that number actually a little bit higher as that falls into inventory.

The capacity utilization -- can you give us some sense of that and where that's moving?

Yeah. We're-- we're still around our 80%-85%-- probably around 85% capacity in both Forest City and our Charles City main motor home production facilities.

Is there any expectation that's going to be-- I assume, as we're moving into the winter, that that might come down a little bit?

Well, you know, without a doubt. You know, this is going to be what we call more of a seasonal year. I think it's fair to say that the RV industry is a little stronger in the spring and summer and in the fall and winter it trends off a little bit. Last year it was a kind of a unique year. We actually spent the fall and winter working overtime because we didn't have our Charles City facility up and running.

Dealer inventory got really low last year at this time and we had to catch up dealer inventory and a strong market that was taking off and so naturally we were working-- you know, and at that time we were probably at 90%-95% capacity in our facilities and we were just ramping up our Charles City facility at that time.

There's been a fair amount of focus, I guess, by the market on the August retail numbers for motor homes with Class A down about 18%. Can you give us your sort of view on that? I mean, how much of it might have been hurricane, how much of it's more just the consumer sort of retrenching going into the election or whatever it might be?

Well, I think-- I think you're going to continue to see some different months that drop off, but I think you really need to look at the long trend. You know, year to date is still up over 9%. August retail was definitely down for the industry. We were pleased with-- you know, we picked up a little extra market share during that month.

You know, we expect to see different months just like, you know, I think it's fair to say that we'll see a little impact in September-October for Florida. But eventually the pent-up demand will get back and I think you kind of have to look at the overall long term.

And, you know, we're watching it just like everybody else to make sure that we continue to control our inventories and keep things in line. But, again, we're very confident that business is quite good yet.

But at this point there's been no production adjustment to sort of just reflect some of the numbers that have come out? You're just kind of running at this 85% rate? You haven't taken any production down as a result?

Well, you know, we don't give any of the details. I mean, it wasn't that long ago, you know, we were on overtime and you weren't aware of that. You know, we have six different production areas, assembly lines, and at different times you have different product lines that are performing well. You know, so I could tell you that, you know, there's a possibility I could tell you we're on overtime in one area and slowing down in another area.

Right. Right. OK. And one last question. The tax rate was a little lower than it had been running earlier this year. Why was that? And maybe give us a sense of what you think the tax rate will be for the next fiscal year?

It was lower. We trued it up at the end of the fiscal year based upon how our calculations come out. We anticipate that it will go forward at approximately the rate it ended the fourth quarter, somewhere in that 36.5% range.

Great. Thanks so much.

Thank you.

Our next question comes from Kevin McCarthy from Prudential Securities.

Hey, guys, nice quarter.

Thank you.

A couple of questions for you. The first one, a market share issue. I'm wondering if you guys have a sense for what could ultimately be attainable for your Class A market share over the next year? That's the first question and the second one, I was wondering if you guys could provide a little bit more breakup by class for your dealer inventories?

First of all, the market share question, all I can tell you is that we continue to identify, just like this last year, areas that Winnebago can continue to improve in. Diesel was an area that we could definitely improve in. We got into that area. This year we introduced some new Class C products and some Class A gas products. You know, the products will prove themselves out.

I have no problem telling you that we're very pleased with our diesel progress this last year. It's probably even a little higher than our expectation. I hope we can do the same thing with some of our new gas lines of Class As and our new lineup of Class Cs.

OK. And any additional color on the breakdown by class for the year-end dealer inventories?

Breakdown in class, like how many--?

Just what percent Class C, Class A gas, Class A diesel.

I'm sorry. I don't have that-- the exact breakdown of that.

OK. Thanks, guys.

And our next question comes from Joe Chumbler, Stephens Inc.

Hey, congratulations on your success with the diesel product.

Thank you.

Can you comment on the retail-- or the attendance at the fall retail shows this year?

Yeah, I think it's-- not just Winnebago but I guess that I would say the whole industry continued to experience very good show traffic and, if you do a survey of the dealers, I think you'll see that they continue to have-- been having very good success.

Our next big show is in Pomona, California, and the way I understand it's going to be the largest Pomona show ever as far as different space and showing of products. So I know they're definitely expecting to do well. I mean, people don't go out and expand and grow if they don't think there's an opportunity to do well. So I think they're looking forward to that.

OK. And then I'd kind of like to dig a little deeper on the Class A gas product category, just in general. What is your outlook in terms of the longevity of that product? Do you see maybe diesels continuing to take over and then possibly all you have room left-- for left in the industry is Class C and a Class A diesel and maybe the A gas category continuing to shrink?

I think diesel, you know, is up to probably, I think, around 43% of the industry now, maybe a little bit higher than that. You know, it may get up to 50/50. I think-- you know, I guess we personally believe that there's going to be a strong Class A gas yet for many years to come also.

You know, it's quite a-- just like if you look at our average selling price, there's quite a price difference and to think that we can skip that entire price category, I think, would be a mistake for our company to assume that we could skip that big a price category and just go to the top because there's too many customers in that price category yet that will be looking for products.

So what does the Class A gas offer that you can't get with a Class C or a competitively priced Class A diesel?

Well, Class Cs you can probably go up to-- they have limitations. You know, I think-- you know, the Ford 450 is probably the biggest GVW chassis that the majority of people build their products on and if you go through and take a look at that, about 31-32 feet is about as big as you can go with that. And then you could have some restrictions with the number of slideouts or amenities that you could offer on that.

So the Class A will allow you to go up to 40 foot products and multiple slide-outs, you know, three slide-outs, and offer other features that I don't think you could take-- get to in a Class C. You know, the GVW is much higher on a Class A gas than what it is on a Class C gas, so you just have more weight in which you can build a product on and add more amenities for that.

So I still think that there's going to be a strong Class A gas, you know, in the future.

All right. Thank you.

Thank you.

We'll go next to Greg Badishkanian, Smith Barney.

Yeah. Hi, good morning and a good quarter. I just had two questions for you. The first one is, when we look at the, you know, the statistical surveys comes out, everyone, you know, has access to that one way or another. It came out, I guess, a few weeks ago. And you went up against a, like, 33% comparison to previous year period. I mean, do we-- should we be looking at, like, a two-year average similar to like retail companies where if retail sales were-- you know, you're going up against a 33% average, you look at sort of a two-year average? Is that the right way to look at it?

I would say so. You know, the bottom line is, you know, the retail trends and different things from stat surveys can-- you know, one month is really not a very good barometer. I do believe you need to take a look at a trend over several months. You know, I don't know whether you need to go two years, but definitely over several months or a quarter at a time or more to get a good indication of the trend set where you're going.

OK. So looking at the previous year period and doing a two-year average is not an unreasonable way to look at it?

No.

And the second one, your backlogs were, you know, surprisingly strong, you know, obviously up about 1.5 weeks on a sequential basis but you had a target of six to eight weeks. You know, how do you see that-- you know, how do you see that sort of panning out? Do you think you'll be able to achieve that or is that what you're still targeting?

Oh, without a doubt. We continue to-- you know, our Charles City facility-- As I said before, we actually have six different classified production areas and we're looking at trying to figure out how they each can contribute and that we can get that down to more in the six to eight week range. We think that would be the ideal situation, you know, for our dealers to get it to them in a very timely manner and yet give us some flexibility in scheduling to make sure that we have a locked-in schedule for efficiencies in production and materials.

Right. Because you don't want to lose sales because you don't have a product with a high backlog, basically?

That's correct.

OK. And I'm just going to ask one more question. You know, you have, I think, like $95m great cash flow. I mean, how do you see the repurchases? A continuation? Maybe you can acceleration that or how do you see that going forward?

Well, we've told everybody in the past, you know, our money, number one, goes for growth and to make sure that we continue to grow for the market. Number two, then we will look at stock buy backs and dividends and whenever we feel that we're starting to get under-valued we have-- we have proven through eight repurchase programs that we will step up and we will buy our stock and that's our continued intent.

Great. Thanks. Congratulations, again.

Thank you.

We'll go next to Gil Alexander [ph] at Darfell Associates [ph].

Good morning and congratulations.

Thank you.

As you look in your Class A diesel, are you getting more competition in this area?

I think in the Class A diesel the competition-- I know we've come into it. We were late to get to that market. You know, there was other companies who were doing better in the diesel market share and Winnebago, if anything, was probably one of the ones that was late to that.

I guess I'm not sure of how many more people are really getting into that. We've been focused on what market there is available and what piece of the pie that we can get.

And what's the advantage on gas mileage, diesel versus gas?

Well, a diesel can-- will probably get-- where a gas engine product will get eight to 10 miles per gallon, maybe, at the best, a diesel may get 12-13-14. So that's kind of the different ranges that I've experienced or heard about.

All right. Thank you and could you give us your capital expenditures for 2005?

They will-- they'll be in the $10m to $11m range.

And were there significant startup costs last year or were they basically minor, opening your plant?

In fiscal '04 we had-- we didn't really have a lot of startup cost. Most of the startup costs for our Charles City assembly plant was incurred in fiscal 2002 and part of it was in fiscal 2003. The bulk of it went in 2003.

Thank you very much. Good luck.

Thank you.

We'll go to Craig Kennison, Robert W. Baird.

Hi, just a couple followups. Ed, what's the G&A expectation for '05?

Right about $10m, just slightly less than $10m.

Thank you. And then when you do anniversary the diesel introduction? I mean, we're not going to have 80% growth forever, I don't think.

We just-- our anniversary-- we just-- our new Vectra-- basically it's this quarter that we introduced it last year.

The fourth quarter?

Yeah.

OK. So we have a full year of the diesel product in the numbers?

The first quarter last year was when we started shipping the product, so that's a correct assumption.

OK. That's very helpful. What were the number of days of production in the current-- in the fourth quarter and what are they expected to be in the next couple of quarters?

We had 59 days of production in the fourth quarter and our first quarter we have two holidays at Thanksgiving and one Labor Day, Craig.

So--

That's gets you down to 62.

Sixty-two. OK. That's helpful. What was the finished goods inventory balance?

We haven't disclosed that. That'll come out in our 10-K.

OK. And then, Ed, in the past you've provided gross margin guidance in the form of a range. Would you care to do that again for Q1 and fiscal '05?

Well, nothing's really changed in that area, Craig. I know we've talked about that in the past. You know, I think, you know, what we've given for general guidance, you know, we performed basically to that same general guidance, certainly, quarter after quarter, and I don't think that's going to-- we don't see that changing in fiscal '05.

And that-- in the past that guidance had been about 13.5% to 14.5%?

That's a fair range.

OK. And then finally, do you have your production rate per week, how many units are you producing a week?

We do not disclose that, Craig.

OK. Thanks again and congratulations.

Thank you.

And just again as a reminder for our audience, it'll be star-one if you'd like to ask a question today. Again, that's star-one for questions. And we'll go next to Ed Aaron, RBC Capital Markets.

Thanks. Good morning, everyone. A few questions. First, I was hoping we could talk a little bit more about the current retail environment. There's been a lot of talk about August, but when we look at the summer as a whole and we saw, you know, three months of a slowdown of growth and I know that the previous growth pace was unsustainable and we came up against tougher comparisons, but I was just wondering, is there anything that you might point to at the consumer level that could explain it? I mean, is there-- has anything really changed in terms of the attitude of your customers?

I guess, you know, just for general information, we continue to see the things that we continue to talk about. We see the demographics very favorable. We see that the age of our consumer continues to broaden. You know, people-- the popularity of RVs isn't falling off. You know, we just got done with a couple special units for tailgating for football games for people and so we continue to see, you know, a wide variety of different uses.

So I guess I continue to-- my personal view is that it's still-- it's still very positive and, you know, economic times are going to kind of determine, you know, when we hit peak periods and when we have just normal growth periods.

Right. And then you mentioned that you're comfortable with your dealer inventory levels. I was wondering if I could get your take on just the channel as a whole? In the last few months we've seen a mismatch between wholesale shipments and retail sell-through, so there just seems to be some inventory building and any comment on just how you see the industry as a whole in terms of where the retail inventories stand?

All I can tell you is that, you know, our dealerships-- we did a survey this last year and we had over 41% of our dealerships that had expressed that they had expanded their operations, either new facilities, additional showroom areas, different-- additional lot areas, service facilities. And I think that, you know, we're seeing a lot of the dealers that we're involved with that are just able to, you know, handle more product lines and more product for the company. So I think that's-- we see that as a very positive move and that should also give us confidence why our inventory should have-- should grow a little bit in the field.

Right. Could you give us some color on how much of the dealer inventory is current year versus the '04 model year product and how that proportion compares to previous years?

All I can tell you is that we were very pleased with the pass-through and the retail that we've seen for our last year, 2004, product. I don't have an exact number or percent, but I can tell you that it's sitting in very good position with 2005 compared to 2004 product.

And then lastly, on-- your receivables were up fairly significantly on a year-over-year basis. What's behind that?

Oh, I think some of that had to do with the fact that a lot of dealers waited to see our 2005 product at dealer days at the beginning of August and subsequently that created a bit of a push of product getting wholesale at the latter half of the quarter.

OK. Great. Thank you very much. Nice quarter.

We'll go next to Timothy Jones, Wasserman & Associates.

Good morning.

Good morning.

I was on a little late, but I don't think you've talked to this. The RVIA, you know, was just carrying down 8% for next year and all the major-- and you guys included talked about, I think, to me at least, you know, something in the 5% range. I think one was a little higher. What are you planning for? I mean, is it still this big dichotomy about what the industry group is saying and what the major manufacturers are saying?

Well, I think-- RVIA gets their information from the University of Michigan. You know, they're looking at interest rates will probably go up and we believe that they will go up a little bit, but they're at-- still at historic lows, so I think a little interest rate should actually show that consumer confidence in the economy is getting better. So we don't think that's going to hurt.

I think the other thing that the University of Michigan collects is that when oil prices go up, that should impact our business and I think that's the reason that they have had this last year where they continue to forecast. I think we've had a-- kind of an extended period where we continue to have pretty good business, you know, and I think oil prices since last spring have been fairly high across the United States and, not just Winnebago, but I think the RV industry has still continued to do quite well.

So I understand where the University of Michigan gets their information to put out their forecast, but on the same hand, I think there's some different trends that we continue to see and believe and we still are pretty optimistic about the future and the growth opportunity for the RV industry.

Well, this is my 37th year of covering the RV industry and it has been my experience in that period of time, which is considerable, that it's oil availability and not oil prices that constrain demand for RVs.

I would have to agree with you on that.

And I totally agree that-- haven't they bothered to look that the interest rates are the lowest in 40 years? That a modest rise would actually be positive on the consumer confidence?

We believe that because even if it rose a little bit, it would just get back to a normal 10-year average of trading in the RV industry. Like in '99 and 2000-- in 1999 when we had our record year for the industry, it was a couple points-- a couple hundred basis points higher than where it is currently today.

Give me a flavor, what-- on financing customers, what does it range from now, I mean? And what is the-- what are the rates that dealers or that companies charge their customers to finance? What do they run right now?

I think -- Tim, this is Ed -- generally speaking you're looking at retail rates anywhere from as low as 5.25% to 6.5% as the range.

Really?

Yeah.

And this is over what period of time?

Typically an average retail contract is 10 to 12 years, although some of our more expensive products can be financed over 20 years or better.

But most are 10 years, except the expensive ones, and that's 20 years and-- I mean, so this is-- is there a difference on the-- the rates given to the high-priced buyers or, you know, Class A diesels as opposed to Class Cs that, perhaps, you know, the income and so forth of the lower-priced buyers are a little bit more dicey? Is there a range in that way, like a FICO score?

I'm now aware that there is. I think that that range that I spoke of really depends upon how aggressive the customer shops for his financing.

What was that range a year ago and two years ago, just so we get a flavor?

Well, probably a year ago--

I think it's the lowest I've ever heard.

--it'd be a quarter to a half a-- 50 basis points less. We haven't seen a whole lot of increase in rates here in the last 12 months.

And that's near the low for the last 30 years like the bonds?

Yeah, we're not really-- In the retail financing environment I don't think the rates today are a whole lot further-- or up the ladder much from where they were a year ago.

I mean, do they basically price off of the 10-year bond like mortgages do?

Yes.

OK. Thank you very much.

And we'll go next to Greg Badishkanian, Smith Barney.

Yeah. Hi, guys. Just a quick followup. You know, a lot of the dealers said that some of the consumers have been delaying purchases due to the elections. I mean, have you seen that phenomenon happen in the past with some event or maybe the last elections and then there's a little bit of pent-up demand then, you know, they purchase, you know, thereafter?

Well, of course, there's no data that you can collect from that. Naturally, I think the entire economy is hoping that the-- you know, when the election gets over that the economy just gets better. And, you know, and I think then maybe consumer confidence will be a little bit higher and people will go out and spend more. But there's absolutely no data that, you know, that we could use to give you any type of justification for that.

Right. Great. Thank you.

And, again, just as a reminder, that's star-one if you'd like to ask a question today. We'll go to Gil Alexander [ph], Darfell Associates [ph].

Hi. Returning to your customer financing or your dealer customer financing, if you take a look at the Class As and the Class A diesels, how much of that cost do they usually finance? I know it varies all over the lot, but is there-- maybe you can give us what the bell curve looks like?

I'm afraid we don't really have that information. I think you're correct, you know, it varies from customer to customer, depending upon the amount of equity he has in his coach. You know, I'm not aware of any specific number that would create an average there.

Right. But let's say you sell a Class diesel for $200,000, is there a good chance that a lot of the dealers are putting up half of the purchase price, I mean, a good part of the customers are putting up half the purchase price?

Well, I think what-- you know, if it's strictly a cash deal and they're not trading in another unit, I think it's fair to say, you know, 15%-20% down would be what would be put down to start a financing program.

Fifteen-twenty percent down? I think you very much. Good luck.

Thank you.

And we'll go next to Michael Novick [ph], Frontier Capital.

Hi. Good quarter. My first question is, can you talk a little bit about how retailers today are managing inventory versus in the past? Has there been any significant consolidation in the industry or perhaps there's better systems to manage inventory than in the past when we've seen inventory gluts come back and hurt the industry?

I think the only thing that I can say is that, you know, I think we're seeing-- one of the trends I think we're seeing in the industry is we're seeing a lot of dealers who are getting to be larger dealers. As I reported earlier, we actually had 41% of our dealers that had announced some type of expansion operations in their facility over the last year. And so I think, you know, as far as their inventories, you know-- you know, again, the interest rates are positive so that they could carry a little bit more. I'm sure that's all part of their profit objective and, you know, it goes back to turns of the inventory that's going to be important for them.

But has there been any change in the systems used by-- by the realtors to actually manage the amount of inventory that they have on hand and--?

Not that I'm--

I mean, for instance, what's your-- who would be your largest retailer and what do they represent as a percentage of your sales?

Oh, our largest dealer represents about 9% of our sales.

And have you seen much consolidation on the retail side of the industry?

I can't say that I see an awful lot. I think dealers are getting bigger and more locations in a lot of cases, but I can't say that I have an exact number that I know-- You know, RVDA may have a-- you know, they may be able to tell you exactly how many dealers they have this year compared to last year, but that would be an industry number.

OK. And what are the-- your retail customers telling you that they're seeing with the impact of fuel prices? Are customers expressing concern about it or is Tim Jones' hypothesis that it's more availability relative to price the key factor?

Well, I think that's pretty much the key factor. I mean, it may cost you $50 extra to fill your motor home up with gas, but if somebody took a trip last year and enjoyed a nice vacation, I don't think they're willing to stay home and say I'm not going to spend that $50. You know, airline travel's gone up in cost. You know, just regular car gas -- you know, any type of travel has gone up and I think pretty much the-- everybody has accepted that we're going to have higher traveling and petroleum costs that-- as we go into the future. But yet I don't think anybody's willing to say, well, I'm going to stay home because of it.

So I think we're going to-- you know, as Tim says, as long as there's availability I think you're going to get people continue to use and enjoy their Winnebago RVs.

OK, great. And then one last housekeeping question. Could you talk a little bit about how much Sarbanes-Oxley compliance cost you this year relative to last year and then how much of that is recurring versus what will go away?

This is Ed. This is probably somewhere in the $200,000 to $275,000 range impact in fiscal 2004 and we probably have another $100,000-$150,000 to go in 2005.

All right. Thank you.

And, again, as a reminder for our audience, it'll be star-one if you'd like to ask a question today. And that's star-one for questions. We'll go next to Doug McClain [ph], Sirios Capital Management.

I was wondering if you could walk us through what, if any, offset raw materials had on the gross margins this quarter?

And also, you know, we've seen some warnings from the auto suppliers based on rising steel prices, many indicating that the impact we should see will actually worsen as we move forward through the year and into '05 as some of those lower-price contracts roll off. I'm just wondering, you know, also the auto manufacturers are saying, you know, their, you know, expectations are that, you know, the increases in steel for them in '05 will be, you know, anywhere from 15% to 30%. Is that consistent with what your outlook is for, you know, kind of chassis material costs for '05? I'm just curious as to, you know, how you're working to offset this aside from raising prices?

Well, first of all, we are being impacted by the same commodity costs that we see in the automotive industry. Keep in mind that we buy our chassis from the automotive industry, so we're a direct link there. Our philosophy has been to pass those price increases on to our consumer, which we have been doing, to try to maintain our margin. We do anticipate that we're going to continue to see commodity price pressures, particularly in the steel and also we've seen it lately, some upward pushing in the petroleum products segment.

So we have seen it. We are passing it on to our consumer and for the most part we've tried to keep it out of the-- you know, impacting our margins and that's our plan going forward.

Any-- any sense as to, you know, what percentage you're expecting your raw materials to increase for '05? Are you expecting like a 10%-15%?

We're not looking at that much. I think when you look at our price increases so far for-- we did not have-- we did not have a price increase midyear in our '04 products. In our '05 products we're probably looking, at least from an economic standpoint, at increases that range anywhere from 2% to 4.5%.

Two to 4.5? So you're looking-- I mean, just doing the math, you're probably anticipating kind of a mid-single-digit increase in raw materials, then?

Yes.

Just one other, you know, followup question on that. You know, obviously in '04 it with the strong demand we saw, a little bit easier to push through those price increases. Any worry that-- You know, if we see, you know, a continued slowdown in demand that, you know, it might be less feasible to put through those price increases through retail and that you might, you know, try to-- you might have to be absorbing a little bit more of that in order to keep demand stoked?

We do not have that plan, you know. You know, so far, you know, our consumers have been able to-- pretty understanding. They understand that the commodity price pressure's there. I think the other thing that's certainly helped us is, you know, calendar 2004 has been a-- you know, with the exception of maybe August has been a very strong retail year and certainly that kind of an environment helps us pass on those increases.

But I think at the end of the day, it goes back to the demographics. You know, our customers want the new features of the new products and I think they're certainly willing to pay the additional 3% or 4% that's going to be in the pricing to offset the commodity pressures.

We so far have not seen any resistance.

OK. Just lastly, any-- any commodities that you think you have a better handle on than others, any-- you seeing some improvement in from '04 to '05?

I can't think of any right now.

OK. All right, thank you.

And at this time it ends our Q&A session and I'll be turning the call back over to Mr. Bruce Hertzke for any additional or closing remarks.

Well, thank you, and, once again, I'd like to thank everyone for joining Winnebago Industries for our fiscal 2004 conference call today. We look forward to talking to you again on December 15th, when we will have a conference call for our first quarter. Thank you and have a good day.

Thank you, everyone, for your participation in today's conference call and you may disconnect at this time.